JENSEN v. HUGH EVANS CO BOOKER (1940)

On March 22, 1932, plaintiffs commenced an action against several defendants, including Diversified Real Estate Investments Trust No. 1 and Diversified Real Estate Investments Trust No. 2, unincorporated business, or “Massachusetts” trusts. Judgment for approximately twelve and seventeen thousand dollars were recovered against the two named trusts respectively. Thereafter Booker and his associates, having by order of court been substituted as trustees of both of said trusts, commenced two separate actions against the former trustees and other defendants to recover on behalf of each of said trusts moneys claimed due because of the mismanagement of the affairs of these trusts. By stipulation the bonding company agreed to pay and judgment was entered for the two sums of twenty-five thousand dollars in each action. The trustees-plaintiffs in those actions authorized their attorneys to accept payment of the fifty thousand dollars. The attorneys retained twenty-five thousand dollars for their legal services and paid over to the plaintiffs-trustees the balance. These trustees then deposited in bank the sum of twelve thousand five hundred dollars to the commercial account of Diversified Real Estate Investments, and, a like sum to the account of Diversified Real Estate Investments Trust No. 2. Thereafter the plaintiffs in the Jensen case caused execution and levy to be made against the two funds. In due time the trustees of each of these separate trusts filed third party claims. In proceedings held under section 689 of the Code of Civil Procedure these parties contended that they had sued for and recovered the judgments as constructive trustees holding for the individual certificate holders of beneficial interests, and that the judgments recovered were for the benefit of these individual holders and not for the trust estates. After a full hearing the trial court rejected this claim and gave judgment for the execution creditors. Thereafter two new third party claims were filed by attorney Olson as agent for subscribers for shares of beneficial interests in the two trusts. After trial and hearing, judgment went for the execution creditors upon these claims. Notices of appeal were filed from these judgments and from several orders made during the proceedings which counsel have stipulated shall be consolidated for hearing on appeal. We will consider the appeals from the judgments and from the order striking appellants' motion for a new trial, and will deem all others abandoned for want of proper prosecution.

The appellants attack the original judgment against the two trust estates because one was sued as “Diversified Real Estate Investments Trust No. 1”, whereas the correct name of the trust was “Diversified Real Estate Investments”. But the cause was tried on the fourth amended complaint of plaintiffs after counsel for defendants had appeared and entered into stipulations as attorneys for the trust as designated in these complaints, and went to trial without any objection that the first trust was improperly designated. The right to so object was therefore waived. Sec. 434, Code Civ.Proc.; Herald v. Glendale Lodge, etc., 46 Cal.App. 325, 330, 189 P. 329.

The original judgment in the Jensen case is attacked upon the ground that the action was brought and the judgment entered against the two trust estates rather than against the individuals then acting as trustees. Authority for the procedure followed is found in section 388 of the Code of Civil Procedure which provides in part: “When two or more persons, associated in any business, transact such business under a common name, whether it comprises the names of such persons or not, the associates may be sued by such common name *.” Before its repeal in 1939, and while this action was pending, section 3 of Act No. 8447a, Deering's General Laws, read: “The term Massachusetts or business trust as herein used shall include every business organization consisting essentially of an arrangement whereby property is conveyed to trustees where the trustees are not restricted to the mere collection of funds and their payment to the beneficiaries but are associated together with similar or greater powers than the directors in a corporation for the purpose of carrying on some business enterprise.” Appellants argue that a business trust is not an association within the contemplation of the section, but Jardine v. Superior Court, 213 Cal. 301, 320, 2 P.2d 756, 79 A.L.R. 291, is authority to the contrary.

Aside from this the two trusts appeared in the Jensen action under the common or trade name by which they were sued, without any objection that they did not have legal capacity to be sued as such, and such objection must be deemed to have been waived. Jardine v. Superior Court, supra, 213 Cal. at page 308, 2 P.2d 756, 79 A.L.R. 291.

The vital issue here raised is whether the proceeds of the Booker judgments belonged to the trust estates, or to the individual certificate holders. If title rested in the trust estates against which the Jensen judgments ran, then the trial court properly held that appellants were not third party claimants. Booker and his associates were substituted as trustees of the two trusts and brought their actions in that capacity “on behalf of said trust estate and of all purchasers or owners of beneficial interests therein”. Such was the pleading of their fourth amended complaint upon which they had judgment. That they were then trustees for all the certificate holders is conceded, but the latter had no interest or title adverse to the trust estate. This follows from the declarations of trust upon which all the rights of these parties rest. It is there declared that “title to the trust property is vested solely in the trustees and they have complete control over it to the same extent as if they were sole owners”. “Shareholders have no interest of any kind in the trust property, nor right to a division of the profits.” (We take this matter from appellants' opening brief. There is no reference to the transcript where the trust indenture may be found, but the parties seem to agree that it was either in evidence or used during the trial. We have followed the same course as to matters appearing in respondents' brief. Where quotations are made in the briefs from pleadings or documents without citation or reference to the transcript, but are not controverted, we assume they are correct.)

When the substituted trustees sued to recover for the mismanagement of the former trustees they sued in the capacity of trustees of the trust estate and the basis of both complaints was that, through the acts complained of, “said trust estate was and is damaged in the total sum of $_.” Under the express terms of the trust indenture, title to the fruits of that litigation vested in the trustees just the same as profits of any other operation of the business. By the express terms of the trust indenture title did not vest in the certificate holders. The Booker judgments were in favor of those plaintiffs as trustees of the “trust estate”. The parties at that time treated the proceeds of the judgment as trust property and deposited the moneys in bank to the account of the estate. The certificate holders as such did not pray for or receive any damages to themselves other than as beneficiaries of the assets of the trust estate.

The action in all its aspects is the same as that class of actions instituted by stockholders of a corporation to redress some wrong done to the corporation. Actions of that class cannot be maintained by individual shareholders to redress wrongs peculiar or individual to themselves. The injury is to the shareholders collectively and the suit is one for the benefit of the corporation. Whitten v. Dabney, 171 Cal. 621, 624, 154 P. 312; Anderson v. Derrick, 220 Cal. 770, 772, 32 P.2d 1078; Nighbert v. First Nat. Bank of Bakersfield, 26 Cal.App.2d 624, 631, 79 P.2d 1105. We conclude from the foregoing that when Booker and his associates recovered their judgments the fruits of those judgments were assets of the trust estate. As such they were subject to the lien of the Jensen judgment.

Appellants argue that property held by a business trust is not subject to execution, but that the creditor's only remedy is a suit in equity. No California authority is cited to the point. Those from other jurisdictions are not applicable because the right is controlled by statute. Section 388 of the Code of Civil Procedure authorizes suit against the legal entity, and the judgment in the Jensen case was so taken. Section 681 et seq. of the same code authorize the levy of execution upon the property of the “judgment debtor”. Section 732 of the Probate Code makes an exception under certain circumstances. We find no exception affecting the property of a corporation, association, or business trust. None having been made by statute, we must assume that none was intended and that the execution statute is general in its application.

Finally it is argued that the trial court erred in striking from the files appellants' motion for a new trial. The order was proper because section 689, Code of Civil Procedure, does not permit a new trial. Wilson v. Dunbar, 36 Cal.App.2d 144, 97 P.2d 262.

The second appeal is submitted on the briefs covering the first. It presents no legal difficulties. After the former judgment was entered, Mr. Olson, as agent of the shareholders, filed a third party claim in their behalf. Judgment went for respondents. Manifestly if the principals had no valid third party claim their agent had none.

The appeals from the order relating to the motion for a new trial and from all other orders are dismissed. The judgments are affirmed.

NOURSE, Presiding Justice.

We concur: STURTEVANT, J.; SPENCE, J.